Companies (Removal of Difficulties) Order, 2018 issued by MCA

MCA issues the “Companies (Removal of Difficulties) Order, 2018”

The MCA has issued the “Companies (Removal of Difficulties) Order, 2018“, to sort out difficulties arising in giving effect to the provisions of the Companies Act, 2013 regarding appointment and removal of independent directors from the boards of companies in certain cases, i.e. to clarify that removal of re-appointed independent director is to be done thru a special resolution only, as under:

Companies (Removal of Difficulties) Order, 2018: MCA Order dt. 21 Feb. 2018

S.O…(E).- Whereas, sub-section (2) of section 152 of the Companies Act, 2013 (18 of 2013) (hereinafter referred to as the said Act) provides that every director (including an independent director) shall be appointed by the company in general meeting;

And whereas, sub-section (10) of section 149 of the said Act provides that subject to the provisions of section 152, an independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for re-appointment on passing of a special resolution by the company and disclosure of such appointment in the Board’s report;

And whereas, sub-section (1) of section 169 of the said Act provides that a company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard;

And whereas, the following difficulties have arisen in giving effect to the above provisions of the said Act regarding appointment and removal of independent directors from the boards of companies, namely

(i) various stakeholders have suggested difficulties regarding proper monitoring and implementation of corporate governance requirements in companies and in order to strengthen corporate governance process, such stakeholders have suggested for reviewing section 169 of the said Act, which, inter-alia, deals with the removal of independent directors;

(ii) in view of the fact that presently an independent director is re-appointed for second term under sub-section (10) of section 149 of the said Act, only by way of a special resolution, such independent director can be removed by an ordinary resolution and not by a special resolution;

And whereas, in order to remove above said difficulty, and to ensure better corporate governance in companies, and balancing of powers of the board of the company, it is felt that there is a need for an amendment in section 169 of the Companies Act, 2013 to provide for removal of such re-appointed independent director by way of a special resolution;

Now, therefore, in exercise of the powers conferred by sub-section (1) of section 470 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following Order to remove the aforesaid difficulty, namely:-

1. Short title and commencement.- (1) This Order may be called the Companies (Removal of Difficulties) Order, 2018. (2) It shall come into force from the date of its publication in the Official Gazette.

2. In the Companies Act, 2013, in section 169, in sub-section (1),

(i) before the proviso, the following proviso shall be inserted, namely:-

“Provided that an independent director re-appointed for second term under sub-section (10) of section 149 shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being heard:”;

(ii) in the existing proviso, for the words “Provided that”, the words “Provided further that” shall be substituted.

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